Global water technology company A. O. Smith Corporation (the 'Company') (NYSE: AOS) today announced 2020 sales of $2.9 billion and net earnings of $344.9 million or $2.12 per share.
Sales were approximately three percent lower than sales of $3.0 billion reported in 2019, driven primarily by pandemic-related sales declines in the first half of 2020 in China. Net earnings in 2019 were $370.0 million or $2.22 per share.
Adjusted earnings of $351.2 million, or $2.16 per share, were approximately five percent lower than 2019 net earnings and excluded $6.3 million, or $0.04 per share, of after-tax severance and restructuring charges in 2020 related to aligning the business to current market conditions.
Record sales of $834.5 million in the fourth quarter of 2020 increased approximately 11 percent compared with sales of $750.9 million in the same period in 2019, primarily due to higher residential water heater volumes in North America and higher sales in China.
In the fourth quarter of 2020, the Company achieved net earnings of $120.0 million, or $0.74 per share, which were approximately 31 percent higher than net earnings of $91.3 million, or $0.56 per share, in the fourth quarter of 2019.
The Company is providing non-GAAP measures (adjusted earnings, adjusted earnings per share and adjusted segment earnings) for 2020 that exclude severance and restructuring charges related to its business alignment actions. Reconciliations to measures on a GAAP basis are provided in the financial information included with this news release.
'With the safety and well-being of our employees as the highest priority, I'm extremely proud of our entire team supporting our customers with essential water heating and water treatment products to combat the pandemic in an indisputably challenging year. We believe our strong balance sheet and the stability afforded by our replacement demand in the U.S., which we estimate at approximately 85 percent of water heater and boiler units sold, put us in a solid position to successfully navigate through the impact of the pandemic,' said Kevin J. Wheeler, chairman and chief executive officer. 'Our North America water treatment sales organically grew 14 percent in 2020, and we believe the U.S. residential industry shipped a record number of tank and tankless water heaters in 2020, exceeding 10 million units. We saw progressive improvement in consumer demand for our products in China throughout 2020 and achieved high single-digit operating margins in that region in the second half of 2020.'
North America segment
Sales of the North America segment in 2020 of $2.1 billion increased approximately two percent compared with 2019. Higher residential water heater volumes, growth in water treatment, as well as a full year of Water-Right sales were partially offset by lower U.S. commercial water heater volumes, lower boiler sales and a water heater sales mix composed of more electric models which have a lower selling price.
North America segment earnings of $503.5 million increased approximately three percent compared with 2019. The increase in earnings was driven by the favorable impact to earnings from higher residential water heater volumes, growth in water treatment sales, a full year of Water-Right sales and lower material costs. The negative impact to earnings from lower volumes of boilers and commercial water heaters and the water heater mix skew to electric partially offset these factors. The resulting segment margin of 23.8 percent was slightly higher than in 2019.
Adjusted segment earnings of $506.2 million excluded $2.7 million in pre-tax severance costs resulting in adjusted segment margin of 23.9 percent.
Record fourth quarter North America segment sales of $560.9 million increased approximately seven percent compared with the same period in 2019, primarily driven by higher residential water heater volumes.
Record fourth quarter North America segment earnings of $137.9 million increased approximately seven percent from the same period in 2019. The increase in earnings was primarily driven by the favorable impact to earnings from higher residential water heater volumes in North America and lower steel costs. These factors were partially offset by higher logistics costs. As a result, fourth quarter segment margin of 24.6 percent was slightly higher than 24.5 percent in 2019.
Rest of World segment
Rest of World segment sales in 2020 of $800.3 million declined approximately 14 percent from 2019. Pandemic-related lockdowns and weak end-market demand, primarily in China in the first half of the year, and a higher mix of mid-priced products resulted in lower sales. Currency translation of China sales favorably impacted sales by approximately $9 million. India sales were also negatively impacted by the pandemic-related economic disruption and declined to $31.0 million compared with $38.6 million in 2019.
Rest of World segment earnings at breakeven in 2020 declined significantly compared with segment earnings of $40.2 million in 2019. In China, the unfavorable impact to earnings from lower sales and a higher mix of mid-priced products, which have lower margins than higher-priced products, more than offset reductions in SG&A costs and temporary waivers for required social insurance contributions. As a result of these factors, segment operating margin was zero compared with 4.3 percent in 2019.
Adjusted segment earnings of $5.0 million in 2020 excluded $5.0 million in pre-tax severance and restructuring costs resulting in adjusted segment margin of 0.6 percent.
Fourth quarter Rest of World segment sales of $279.0 million improved approximately 19 percent compared with the fourth quarter of 2019. Currency translation of China sales favorably impacted sales by approximately $14 million. Constant currency China sales improved 15 percent driven by mid-single-digit growth in end market demand led by water treatment, replacement water treatment filters and gas tankless water heaters and a favorable mix between product categories compared with the fourth quarter of 2019.
Fourth quarter Rest of World segment earnings of $31.3 million improved significantly from $1.5 million in the same quarter in 2019. In China, the favorable impact to earnings from higher volumes, reductions in SG&A costs and lower material costs drove higher earnings. As a result of these factors, fourth quarter segment margin improved to 11.2 percent compared with 0.6 percent in 2019.
Forward-looking statements
This release contains statements that the Company believes are 'forward-looking statements' within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of words such as 'may,' 'will,' 'expect,' 'intend,' 'estimate,' 'anticipate,' 'believe,' 'forecast,' 'continue,' 'guidance' or words of similar meaning. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this release. Important factors that could cause actual results to differ materially from these expectations include, among other things, the following: negative impacts to the Company's businesses, including demand for its products, particularly commercial products, operations and workforce dislocation and disruption, supply chain disruption and liquidity as a result of the severity and duration of the COVID-19 pandemic; a failure to recover or a further weakening of the Chinese economy and/or a failure to recover or a further decline in the growth rate of consumer spending or housing sales in China; negative impact to the Company's businesses from international tariffs and trade disputes; potential further weakening in the high-efficiency boiler segment in the U.S.; significant volatility in raw material availability and prices; inability of the Company to implement or maintain pricing actions; a failure to recover or further weakening in U.S. residential or commercial construction or instability in the Company's replacement markets; foreign currency fluctuations; the Company's inability to successfully integrate or achieve its strategic objectives resulting from acquisitions; competitive pressures on the Company's businesses; the impact of potential information technology or data security breaches; changes in government regulations or regulatory requirements and adverse developments in general economic, political and business conditions in key regions of the world. Forward-looking statements included in this news release are made only as of the date of this release, and the Company is under no obligation to update these statements to reflect subsequent events or circumstances. All subsequent written and oral forward-looking statements attributed to the Company, or persons acting on its behalf, are qualified entirely by these cautionary statements.
Contact:
Mark Petrarca
Tel: 414.359.4100
Email: mpetrarca@aosmith.com
A. O. SMITH CORPORATION 
